Recently, Indian banks are facing their biggest money shortage in nearly six months. This problem is mainly happening because companies are paying their taxes and the central bank is selling dollars to keep the value of the Indian rupee stable.
Right now, banks are short about 1.5 trillion rupees (that’s around 17.7 billion dollars). This is the worst it has been since June 24. The Reserve Bank of India (RBI) has been selling dollars since October, which is making it harder for banks to keep enough money available.
The RBI is likely to keep trying to manage the dollar’s value, especially since India’s trade deficit is growing and the dollar is getting stronger. Recently, the rupee fell to a new low, reaching 84.9337 per dollar.
Even though the RBI has made some efforts to help increase how much money there is in the banking system—like lowering the cash-reserve ratio and providing more funds through special loans—it’s still not enough. According to Anubhuti Sahay, an economist at Standard Chartered Bank, more actions like buying bonds or offering different types of loans are needed to keep money available.
The money shortage is making it more expensive for banks to borrow money from each other. The interest rate for overnight loans has gone up by 35 basis points, which is higher than the RBI’s main interest rate of 6.50%.
Also, the end of the year is a busy time for banks, as companies have to pay their taxes. This extra money demand is adding to the cash shortage. According to Gaura Sengupta from IDFC First Bank Ltd, the latest tax payments have pulled 1.4 trillion rupees out of the banking system.
In simple terms, banks in India are currently facing a significant money shortage because of tax payments and actions from the central bank.
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